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THE  WORLD’S  EXPERIENCE 

OF 

GOVERNMENT  PAPER  MONEY. 


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in  2016  with  funding  from 

University  of  Illinois  Urbana-Champaign  Alternates 


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The  World’s  Experience 

OF 

GOVERNMENT  PAPER  MONEY: 


A SERIES  OF  EDITORIAL  ARTICLES 

PUBLISHED  IN  THE 

New  York  Journal  of  Commerce  and  Commercial  Bulletin, 

NOVEMBER  21  and  25  and  DECEMBER  4 and  12 

1896. 


I.  RUSSIA. 


A great  many  people  are  blind  to  the 
danger  of  making  the  demand  notes  of 
the  Government  the  basis  of  a national 
currency  because  they  are  unfamiliar  with 
the  experience  with  paper  money  of  any 
nation  but  our  O'wn.  In  dealing  even  with 
this  they  are  apt  to  recall  the  dangers  and 
inconveniences  of  the  unregulated  system 
of  State  bank  issues  that  preceded  the  era 
of  the  greenbacks  and  the  national  bank- 
ing system  that  grew  out  of  the  necessi- 
ties of  the  war,  rather  than  the  lasting 
injury  inflicted  on  public  credit  by  the 
costly  and  demoralizing  expedient  of  mak- 
ing a forced  loan  on  the  people  by  means 
of  demand  notes  dishonored  in  the  act  of 
making  them.  We  propose  to  offer  a con- 
tribution to  public  education  on  this  sub- 
ject by  passing  in  review  the  experience 
of  other  nations  than  our  own  with  this 
disastrous  expedient,  and  by  showing  how 
uniform  has  been  the  failure  of  all  at- 
tempts to  erect  a solid  structure  of  sound 


currency  on  so  utterly  i«secure  a basis. 
The  experience  of  Russia  with  which  we 
begin  this  series  of  articles  will  be  found 
to  supply  an  instructive  lesson  and  an  Im- 
pressive warning. 

It  was  in  1768,  under  a decree  of  the  Em- 
press Catherine,  that  tlwo  banks  were  called 
into  being  to  place  in  circulation  paper 
money  issued  by  the  State.  The  apology 
for  the  issue  of  this  money,  known  as 
assignats,  was  the  need  of  a more  con- 
venient form  of  money  than  the  silver  and 
copper  then  in  use  and  of  an  increase  of 
the  circulating  medium.  The  notes  were 
not  made  a legal  tender,  and  due  pro- 
vision was  made  for  their  redemption  In 
silver  on  demand.  The  system  was 
started  under  the  fairest  auspices,  was 
surrounded  by  careful  precautions  against 
its  abuse,  and  might  have  been  cited  as  an 
example  of  the  intelligent  forethought 
which  a paternal  government  bestows  on 
the  welfare  of  its  citizens.  But  it  was 


4 


the  Introduction  of  the  head  of  the  camel 
Into  the  tent  of  the  Arab,  and  it  had  the 
usual  sequel. 

The  regrime  of  prudence  lasted  for 
eighteen  years,  these  things  not  marching 
so  quickly  a hundred  years  ago  as  they 
do  in  our  day.  In  1786  the  paternal  heart 
of  the  Government  had  a new  prompting, 
of  the  kind  so  warmly  approved  in  the 
State  of  Kansas.  An  issue  of  60,000,000  of 
rouibles  wtas  ordered,  of  which  22,000,000 
were  to  toe  employed  in  making  loans  to 
the  notollity  and  11,000,000  in  loans  to 
cities.  The  two  original  banks  were  at 
the  same  time  consolidated  with  the  loan 
bank  of  the  Empire,  and  the  institution 
thus  created  was  relieved  of  the  necessity 
of  compulsory  redemption  of  the  notes  of 
the  State  because  the  new  currency  was 
secured  only  in  part  by  a metallic  re- 
serve, the  rest  toeing  issued  against  mort- 
gage loans.  As  a counsel  of  perfection, 
however.  It  was  decreed  that  the  issue  of 
assignats  should  never  exceed  100,000,000 
rouibles.  The  promise  was  kept  just  four 
years,  and  in  1790,  when  the  French  Revo- 
lutionary Government  began  to  disturb 
the  peace  of  Europe,  the  limit  was  passed 
■'7  11,000,000.  After  that  came  the  deluge. 
By  1793,  the  year  of  Catherine’s  death, 

157,000,000  had  been  issued;  in  1800  the 
amount  was  212,000,000,  and  by  1810  the 
paper  circulation,  based  solely  on  the 
''redlt  of  the  Government,  had  reached  a 
/)tal  of  577,000,000  roubles. 

Of  course  the  Interval  between  the  value 
of  metallic  money  and  that  of  the  as- 
signats Increased  with  each  succeeding 
issue.  In  1793  the  difference  was  forty- 
five  per  cent,  by  1807  the  silver  rouble  of 
100  copecks  was  worth  164  in  paper,  in  180 
it  rose  to  2001^,  in  1810  to  401,  and  In  18ll 
the  year  of  Napoleon’s  march  to  Moscow, 
it  reached  423,  so  that  the  assignat  rouble 
was  worth  only  23%  copecks  in  silver. 
The  demoralization  of  all  prices  was  ruin- 
nu.e;  to  both  producers  and  consumers,  and 
the  State  Treasury  which  was  bound  to 
receive  the  assignats  at  par  in  payment 
of  taxes  began  to  pay  the  price  of  finan- 
cial recklessness.  To  cover  the  steadily 
increasing  deficiencies  in  its  revenue  the 
State  issued  more  paper,  merely  with  the 
result  of  enlarging  them,  because  the 
greater  the  infiation  in  the  volume  of  the 
circulation  the  greater  the  shrinkage  in  Its 
value.  So  finally,  in  1812,  the  last  prop 


was  removed  from  the  paper  rouble  by 
the  refusal  of  the  Government  to  recognize 
Its  assignats  as  a legal  tender  to  the 
Treasury.  As  the  edifice  of  national  credit 
began  to  tumble,  plans  were  made  to  build 
another  on  a more  solid  foundation.  Thus, 
by  an  Imperial  decree  of  1810,  it  was  pro- 
vided that  the  silver  rouble  should  be  once 
more  the  only  legal  money,  and  a*  loan 
was  issued  for  the  purpose  of  substituting 
interest-bearing  bonds  for  part  at  least 
of  the  forced  loan  in  the  shape  of  incon- 
vertible paper  that  had  been  imposed  on 
the  people.  The  scheme  fell  through,  and 
with  the  renewal  of  the  Napoleonic  wars 
came  fresh  issues  of  assignats  till  their 
amount  reached  the  impressive  total  of 

800,000,000  roubles. 

Meanwhile  the  value  of  the  paper  rouble 
kept  on  the  average  at  about  25  per  cent 
of  its  face  value.  Several  years  after  the 
issue  ceased,  it  began  slowly  to  appreciate, 
reaching  28  per  cent  in  1840,  twenty-five 
years  after  the  conclusion  of  peace  and 
twenty-three  years  after  the  maximum  of 
paper  issue  was  reached.  The  generation 
to  whom  the  assignats  were  issued  had 
clearly  been  cheated  out  of  some  600,000,- 
000  of  roubles  by  the  failure  of  their  Gov- 
ernment to  keep  its  promises  to  pay. 
Between  1817  and  1820  the  Government 
took  some  measures  to  buy  back,  by  the 
aid  of  foreign  loans,  its  dishonored  paper. 
But  it  took  it  up  at  the  market  price  of 
four  paper  roubles  to  one  of  silver,  and 
thus  at  a moderate  outlay  reduced  the 
amount  of  assignats  outstanding  from 

800,000,000  to  595,000,000  roubles.  But  it 
was  not  till  1839  that  the  attempt  was 
seriously  made  to  reform  the  currency. 
A deeree  of  that  year  pro\'ided  that  for 
the  future  silver  money  should  he  the  only 
legal  tender,  that  all  taxes  and  private 
debts  should  he  estimated  and  paid  in 
that  money,  and  that  the  ratio  between 
■the  silver  and  the  assignat  rouble  should 
be  fixed,  once  for  all,  at  1 to  3%.  This 
was  followed  in  1841  by  a decree  creating 
a new  form  of  note — the  credit  rouble — 
which  has  existed  from  that  day  to  this, 
and  in  1843  by  another  calling  for  the  re- 
tirement of  all  outstanding  assignats  In 
exchange  for  the  new  form  of  bill  at  the 
rate  established  In  1840. 

The  new  system,  like  the  old  one,  began 
under  the  most  favorable  auspices.  A 
discredited  form  of  currency,  worth  only 


5 


28  2-7  of  ita  nominal  value,  had  been 
driven  out  of  circulation  and  in  its  place 
there  was  a brand  new  note  of  the  Gov- 
ernment, exchangeable  on  demand  for  sil- 
ver, and  quite  on  a par  with  the  paper 
money  of  the  richest  countries  of  Europe. 
The  credit  rouble  had  its  origin  in  the 
issue  of  bills  on  the  deposit  of  silver.  As 
the  deposits  increased  and  few  demands 
were  made  for  payment,  it  was  determined 
that  a specie  reserve  of  one-sixth  of  the 
amoimt  issued  was  sufficient  to  secure 
the  paper  circulation.  Thus,  for  the  180,- 
000,000  of  credit  roubles  issued  to  retire 

595.000. 000  roubles  in  assignats,  the  sum  of 

30.000. 000  roubles  in  silver  was  deemed 
sufficient  security.  There  was  a tempting 
ease  about  this  method  of  supplying  money 
with  which  to  conduct  the  Government. 
So  in  1849  a supplementary  issue  of  20,- 
000,000  was  ordered,  and  in  1853  another 
of  40,000,000  roubles.  Then  came  the 
Crimean  war  and  a difficulty  in  negotia- 
ating  loans  abroad,  compelling  the  Treas- 
ury to  meet  all  extraordinary  expenses  by 
“temporary”  issues  of  bills  of  credit.  It 
was  formally  decreed  that  at  each  issue 
the  Treasury  was  to  deposit  with  the  is- 
suing office  one-sixth  of  the  sum  in  metal, 
and  that  these  temporary  bills  were  to  be 
retired  within  three  years  after  the  close 
of  the  war.  The  bills  are  in  circulation 
yet.  The  volume  of  paper  money  which 
had  been  250,000,000  roubles  after  its  first 
increase  in  1853  was  509,000,000  at  the  end 
of  1855,  and  by  the  time  the  authority  for 
the  issue  of  “temporary”  bills  was  re- 
scinded the  amount  had  reached  the  total 
of  725,000,000  roubles. 

Among  the  reforms  attempted  but  not 
achieved  by  Alexander  II.  was  that  of  the 
currency.  A plan  for  the  resumption  of 
specie  payments  formulated  in  1862  proved 
a failure,  primarily  because  the  coin  re- 
sources of  the  Government  were  In- 
adequate and  there  was  a great  redund- 
ance of  paper.  In  less  than  ten  years  the 
circulation  had  been  increased  almost 


threefold,  an  increase  demanded  not  by 
any  commercial  or  industrial  neceeaity 
but  simply  by  the  needs  of  the  Treasury. 
The  harvest  of  disaster  was  not  slow  in 
ripening.  As  a German  observer  said  In 
1865:  “The  condition  of  Russia  is  im- 
measurably sad,  not  to  say  hopeless. 
Paper  money  is  depreciated  by  one-fifth, 
despite  its  legal  tender  value;  gold  and 
silver  have  disappeared;  there  is  practi- 
cally no  credit;  discount  rates  are  high; 
there  is  an  annual  deficit;  trade  is  nearly 
at  a standstill,  and  capital  is  exhausted 
almost  to  the  last  penny;  prices  are  im- 
moderately high;  the  no'bility  is  ruined,  the 
capital  city  and  trade  centres  are  in  vis- 
ible decay.”  It  has  taken  about  thirty 
years  to  extricate  Russia  from  that  slough. 
The  volume  of  paper  money  was  increased 
by  the  issue  of  some  400,000,000  roubles  in 
the  last  war  with  Turkey,  1876-77,  but  the 
foundations  of  a gold  reserve  were  laid 
before  that  time,  and  the  edifice  has  to- 
day attained  such  proportions  that  Russia 
has  in  the  coffers  of  the  bank  or  of  the 
Treasury  one  gold  rouble  for  every  two 
paper  roubles  outstanding.  In  the  last 
twenty-five  years  the  exchange  value  of 
the  paper  rouble  has  fluctuated  wildly, 
being  at  times  as  high  as  87  copecks— par 
being  100 — and  at  times  as  low  as  62.  The 
redemption  of  the  paper  rouble,  originally 
payable  in  silver,  is  to  be  effected,  as  al- 
ready explained  in  these  columns,  in  gold 
at  the  rate  of  66  2-3  copecks  to  the  rouble, 
and  Russia  is  about  to  close  her  long  and 
disastrous  experiment  -with  a currency  of 
Government  paper  by  decreeing  that, 
henceforth,  no  bills  of  credit  shall  be  Issued 
on  account  of  the  Treasury.  These  facts 
may  be  commended  to  the  study  of  those 
who  have  become  Infected  with  an  In- 
fatuation for  the  greenback  and  the  Sher- 
man note.  They  are  quite  incompatible 
with  the  theory  that  Government  paper 
is  either  a safe  or  a sound  form  of  cur- 
rency. 


6 


11.  ITALY  AND  SPAIN. 


We  have  seen,  in  the  case  of  Russia, 
the  Government  of  a great  empire  about 
to  surrender,  after  a costly  experience  of 
130  years,  the  right  to  issue  its  own  notes 
to  serve  the  purpose  of  a national  cur- 
rency. Every  step  taken  toward  this  end 
has  marked  an  ijnprovement  in  public 
credit  and  an  advance  in  the  development 
of  commerce  and  industry.  In  the  two 
countries  to  whose  experience  we  devote 
this  article  the  converse  of  the  Russian 
policy  is  being  followed,  and  Italy  is 
steadily  and  Spain  very  rapidly  drifting 
towards  hopeless  bankruptcy.  In  both 
the  credit  of  the  banks  has  become 
merged  with  the  credit  of  the  Govern- 
ment, in  both  the  Government  has  exer- 
cised the  right  to  drain  the  resources  of 
the  banks  at  its  pleasure,  and  in  both 
cases  the  penalty  paid  for  the  identiflca- 
tlon  of  two  interests  which  can  never  be 
safely  conjoined  has  been  out  of  all  pro- 
portion to  the  temporary  advantage 
gained  by  the  arrangement  made  between 
them. 

It  is  Pierre  des  Essars  who  says  very 
aptly,  In  his  treatise  on  Banking  in  the 
Latin  Nations*;  “There  is  a treacherous 
enemy  who  lays  pitfalls  for  prodigal  gov- 
ernments and  for  the  banks  which  lack 
stamina  to  resist  the  State’s  intrusion; 
this  enemy  is  called  Exchange,  and  it  Is 
the  dial  of  national  decline  of  credit.  This 
exchange  arrests  all  commerce  and  makes 
trading  a speculation  on  the  country’s 
money.  This  exchange  impoverishes,  day 
by  day,  whoever  receives  an  unsound 
bank  note;  it  makes  such  money  melt 
like  snow,  and  like  snow  it  trickles  from 
the  hands.”  The  monetary  unit  which  Is 
called  a franc  In  Prance  Is  called  a lira 
in  Italy,  and  the  par  of  exchange  of  both 
is  precisely  the  same,  say,  5.18%  to  the 
dollar.  But  a reference  to  the  current 
quotations  for  European  exchange  will 
show  that  while  the  rate  for  a banker’s 
sight  draft  on  Paris  is  fr.  5.19%  to  the 
dollar,  the  sam-^  kind  nf  draft  on  Italy 
commands  lire  5.46%  to  5.56%  per  dollar. 
The  difference  marks  the  depredation 

• Cr>ntalned  !n  “The  History  of  Banklnjr  In  the 
r-eadlnjr  NatlonB,”  oubllrtied  at  thl*  office. 


which  has  already  taken  place  in  the 
Italian  currency — a,  depreciation  caused 
by  the  issue  of  paper  through  the  banks 
on  the  credit  of  the  Government,  and 
which,  very  largely  because  of  this  issue, 
the  Government  is  powerless  to  cure. 

The  first  raid  which  the  Kingdom  of 
Italy  made  on  the  banks  was  in  the  form 
of  a loan  of  300,000,000  lire  in  notes  from 
the  National  Bank  in  1872.  There  fol- 
lowed in  1874  the  paper  loan  of  the  syndi- 
cated banks,  amounting  to  1,000,000,000,000 
lire,  for  which  six  then  existing  institu- 
tions of  credit  made  themselves  respon- 
sible. This  paper,  which  was  of  all  de- 
nominations from  half  a lira,  or  ten  cents, 
to  1000  lire,  or  $200,  was  made  a legal 
tender  throughout  the  Kingdom,  the  notes 
of  the  individual  banks  being  a legal 
tender  only  in  the  provinces  where  the 
offices  and  branches  of  the  banks  were 
situated.  The  forced  currency  of  the 
syndicate  notes  which  was  limited  to  two 
years  was  finally  extended  to  seven.  In 
1881  the  syndicate  was  dissolved  and  the 
Government  negotiated  a loan  for  the  re- 
demption of  the  notes.  All  that  were  in 
circulation  were  considered  a Government 
debt  and  continued  to  be  a legal  tender 
for  the  whole  Kingdom,  but  were  to  be 
redeemable  in  coin  on  presentation.  There 
are  still  in  circulation  over  five  hundred 
millions  of  lire  of  Government  paper  in 
notes  of  from  one  lira  to  five  lire,  but  it 
has  not  been  kept  at  par  with  gold. 

The  reason  for  this  is  not  far  to  seek. 
It  was  in  the  beginning  of  1894,  when  the 
monetary  situation  was  going  from  bad 
to  worse,  that  the  'Minister  of  Finance 
and  of  the  Treasury  proposed  the  remedy 
which  always  suggests  Itself  in  such 
cases — the  Issue  of  more  Government 
paper.  His  Idea  was  to  issue  another  600 
million  lire  In  denominations  of  6,  10  and 
2!>,  to  be  secured  by  200  million  lire  of 
gold  belonging  to  the  banks  which  should 
be  placed  at  the  State’s  disposal  and  held 
as  reserve.  In  place  of  the  200  million 
thus  taken  from  the  banks  the  State  was 
to  deposit  Its  notes  and  the  banks  were 
to  be  allowed  to  count  them  as  so  much 
metallllc  reserve  on  which  they  could  Issue 


7 


notes  in  the  proportion  of  three  to  one. 
While  the  Grovernment  may  issue  600 
million  of  paper  on  the  streng’th  of  the 
200  million  in  gold  taken  from  the  banks, 
and  still  be  within  the  three  to  one  rule, 
it  is  plain  that  the  security  of  the  bank 
note  circulation  must  be  to  that  extent 
impaired.  The  scheme  which  is  known 
as  the  decree  of  February  21,  1894,  is  one 
of  inflation  pure  and  simple,  and  hangs 
like  a threatening  cloud  over  Italian 
credit.  The  fifth  article  of  the  same  de- 
cree contains  this  concession  to  the  diffi- 
culty of  maintaining  specie  payments 
under  such  circumstances, — in  case  of 
notes  being  presented  for  redemption  the 
banks  have  the  right  to  demand  the 
benefit  of  the  premium  quoted  on  the  Ex- 
change, so  that  if  the  premium  on  gold  be 
10  it  requires  notes  for  110  lire  to  procure 
100  lire  in  gold. 

With  a currency  exposed  to  an  indefinite 
amount  of  depreciation  at  the  caprice  of 
the  Government,  and  a debt  of  over  $2,- 
500,000,000  crushing  it  to  the  earth,  it  re- 
quires a somewhat  robust  faitlr  to  believe 
in  the  financial  recovery  of  Italy. 

The  case  of  Spain  absolutely  precludes 
the  exercise  of  faith.  Here  the  Govern- 
ment has  hopelessly  demoralized  one  of 
the  strongest  and  most  profitable  bank- 
ing institutions  in  Europe  by  making  a 
forced  loan  on  it  whenever  the  occasion 
arose.  That  it  has  arisen  very  often  may 
be  inferred  from  the  fact  that  the  note 
circulation  of  the  Bank  of  Spain,  which 
in  1885  was  424,000,000  pesetas  (francs), 
rose  to  740,000,000  in  1890,  was  931,000,000 
in  1894,  and  is  considerably  over  1,000,000,- 
000  to-day.  There  has  been  no  increase  of 
Spanish  commerce  to  warrant  this  In- 
crease of  circulation;  it  is  purely  and 
solely  a forced  loan  to  the  Government. 
The  charter  of  the  Bank  of  Spain  dates 
from  1874,  and  when  it  was  granted  It 
was  stipulated  that  the  bank  should  only 
negotiate  public  securities  or  make  ad- 
vances to  the  State  upon  substantial 
guarantees  which  could  be  readily  con- 
verted into  funds.  When  the  term  of  the 
charter  was  extended  in  1891  the  bank 
was  compelled  to  lend  to  the  Treasury 
150  million  of  pesetas,  without  interest, 
reimbursement  of  which  cannot  be  de- 
manded till  1921. 

The  assets  against  the  circulation  of  the 
Bank  of  Spain  Includes  275  millions  of 
pljver  worth  fifty  per  cent  of  Its  face 


value  and  720  millions  of  the  obligations 
of  a State  heavily  in  debt,  and  with  vir- 
tually no  credit  abroad.  The  bank  is  al- 
ways ready  to  pay  out  the  five  peseta 
piece — the  duro — ^but  refuses  to  pay  in 
gold,  so  that,  as  nobody  wants  silver,  the 
country  is  practically  under  a regime  of 
inconvertible  paper.  Spain  is  not  in  the 
Latin  Union,  so  that  her  silver  does  not 
circulate  outside  of  her  own  borders.  In 
point  of  fact  the  bank  notes,  redeemable 
only  in  silver,  are  worth  more  than  the 
bullion  value  of  the  silver  coins — the  dis- 
count on  them  being  not  50  per  cent  as  it 
would  be  if  their  value  was  accurately 
measured  by  the  equivalent  silver,  but 
only  20  per  cent  at  the  present  time.  Of 
course  the  depreciated  silver  and  paper 
money  have  driven  away  good  money, 
gold  pieces  being  quite  unknown  in  the 
circulation  of  the  country.  The  signature 
of  the  bank  is  worth  something  on  its 
notes,  as  the  facts  cited  show,  but  the 
credit  and  resources  of  the  bank  are  so 
absolutely  at  the  mercy  of  the  Govern- 
ment that  every  fresh  blow  which  the 
credit  of  the  latter  receives  tends  still 
further  to  depreciate  the  bank  paper. 

If  our  silver  advocates  were  right  in 
the  assumption  that  a high  rate  of  ex- 
change against  a country  serves  to  de- 
velop its  industries  and  stimulate  its  for- 
eign commerce,  Spanish  trade  would  be 
flourishing.  But  it  has  for  years  been 
seriously  depressed,  and  instead  of  the 
depreciated  currency  stimulating  exports 
the  imports  of  Spain  are,  in  spite  of  al- 
most prohibitory  customs  duties,  always 
in  excess  of  the  exports.  Briefly,  to  quote 
the  pithy  comment  of  M.  des  Essars, 
“Spain  suffers  from  the  mistake  which 
economists  fight  in  vain — the  error  that 
the  Government  can  do  as  it  pleases  with 
the  money  and  the  credit  of  the  country. 
Laws  do  not  change  the  nature  of  affairs, 
and  if  matters  are  handled  contrary  to 
nature,  immediate  and  sudden  counter- 
shocks  show  that  mistakes  have  been 
made,  and  those  who  danced  must  pa3^ 
the  piper.”  With  the  decline  of  Spanish 
credit  the  depreciation  of  the  national 
money  keeps  steady  pace,  and  concurrent- 
ly with  both  goes  on  the  process  of  com- 
mercial dislocation  and  industrial 
paralysis,  with  the  goal  of  general  bank, 
ruptcy  not  dimly  in  view  in  the  near 
future. 


8 


III.  FRANCE. 


It  has  been  said  apropos  of  the  finan- 
cial policy  of  the  Committee  of  Public 
Safety  of  the  French  Revolution,  that 
demagog-lsm  has  an  instinctive  hatred  of 
all  credit  institutions,  understanding  none 
of  them,  and  seeing  in  them  all  nothing 
but  instruments  of  speculation  and  fraud. 
We  stop  to  wonder  at  the  excesses  of  the 
reign  of  terror  and  almost  fail  to  recog- 
nize them  as  human,  yet  the  attitude  to- 
ward a number  of  social  and  economic 
questions  of  the  Government  which  sanc- 
tioned them  did  not  essentially  differ 
from  that  of  a party  whose  candidates 
have  just  received  the  support  of  6,400,000 
people  in  the  United  States.  The  vindic- 
tiveness with  which  the  National  Assem- 
bly and  its  successor  the  Convention  pur- 
sued the  Discount  Bank  of  Paris  finds 
an  echo'  in  the  declaration  of  the  Chicago 
platform  denouncing  the  issue  of  notes 
intended  to  circulate  as  money  by  Na- 
tional banks  “as  in  derogation  of  the 
Constitution,”  and  in  the  twin  declara- 
tion made  by  the  Populists  at  St.  Louis, 
“we  demand  a national  money  issued  by 
the  general  Government  only,  without 
the  intervention  of  banks  of  issue,  to  be 
a full  legal  tender  for  all  debts,  public 
and  private.” 

The  French  National  Assembly  was 
like  the  party  that  nominated  Bryan, 
very  deeply  impressed  with  the  scarcity 
of  money.  Having  sequestrated  the 
church  lands  it  seized  on  the  idea  of 
making  them  and  the  property  of  the 
crown  the  basis  of  an  issue  of  Govern- 
ment paper.  This  was  the  origin  of  the 
assignats  whose  history  is  known  of  all 
nations,  but  has  been  heeded  by  few. 
They  were,  originally,  interest-bearing 
mortgage  bonds,  secured  by  the  royal 
and  ecclesiastical  estates  and  redeemable 
by  the  product  of  these  properties.  Of 
the  first  four  hundred  million  of  francs 
of  these  obligations  issued  in  1789  the 
rate  of  redemption  was  duly  prescribed. 
There  were  to  be  120  millions  cancelled 
in  1791,  100  millions  in  1792,  80  millions  in 
1793-4,  and  the  remainder  in  1795.  They 
at  first  bore  interest  at  five  per  cent,  but 
this  was  reduced  in  1790  to  three  per 


cent;  they  were,  further;  made  a legal 
tender  between  individuals,  and  all  pub- 
lic departments  were  directed  to  receive 
them  as  the  equivalent  of  specie.  The 
new  notes  were  popular,  and,  as  is  cus- 
tomary in  such  cases,  ^ the  Government 
concluded  that  the  people  could  not  have 
too  much  of  a good  thing.  Issue  suc- 
ceeded issue,  till  within  two  years  and  a 
half  after  their  first  appearance  there 
was  2,385,000,000  francs  in  nominal  value 
of  them  outstanding. 

Combining  the  two  fatal  qualities  of 
redundancy  and  lack  of  security,  the 
assignats  rapidly  depreciated.  The  Con- 
vention thought  it  could  arrest  the  down- 
ward course  of  the  paper  money  by 
*'nal  legislation.  Our  own  Populist  con- 
tentions revived  the  same  idea  when 
they  demanded  “such  legislation  as  will 
prevent  the  demonetization  of  the  lawful 
money  of  the  United  States  by  private 
contract.”  The  Revolutionary  Junta  pro- 
vided a penalty  of  six  years’  imprison- 
ment for  all  sellers  of  coin  who  should 
exchange  a given  amount  of  gold  or  sil- 
ver for  a nominally  greater  amount  of 
assignats,  and  the  same  penalty  was  Im- 
posed on  merchants  who  should  sell  their 
goods  at  one  price  in  assignats  and  at 
another  in  coin.  Nevertheless,  in  June, 
1793,  a silver  franc  was  worth  three,  and 
in  August  worth  six,  francs  in  assignats. 
It  was  a great  opportunity  for  debtors, 
of  which  the  State  was  chief.  Obligations 
which  had  been  incurred  in  money  of 
full  value  were  paid  off  in  this  depreciated 
currency  at  its  face  value  to  the  impov- 
erishment and  ruin  of  creditors.  Work- 
ing people  discovered  that  they  too  be- 
longed to  the  creditor  class,  and  being 
unable  to  force  their  wages  up  as  fast 
as  assignats  went  down,  they  soon  found 
that  they  were  not  getting  enough  to  buy 
the  actual  necessaries  of  life.  By  a con- 
fusion of  Ideas,  not  absolutely  unknown 
since  that  time,  they  laid  their  troubles 
on  the  merchants,  and  demanded  that 
these  avaricious  persons  who  would  not 
give  a franc’s  worth  of  goods  for  a flo- 
titious  franc  worth  only  20  centimes 
should  be  sent  to  the  guilloHne. 


9 


By  way  of  relieving  popular  dlatress  tbo 
Convention  tried  its  liand  at  Axing  prices. 
It  decreed  that  the  maximum  price  of  a 
quintal  of  wheat  should  be  fourteen 
livres,  and  the  prices  of  other  articles  of 
necessity  were  Axed  in  proportion,  dire 
penalties  being  promulgated  against  all 
who  should  trade  in  disregard  of  the  law. 
The  result  was  that  trade  ceased  almost 
entirely,  what  was  done  being  mostly  con- 
ducted in  secrecy.  BrieAy,  the  law  was  a 
signal  failure,  and  its  repeal  was  found 
to  be  imperative.  The  fact  that  the  issues 
of  Government  paper  went  on  gaily  had 
something  to  do  with  precipitating  this 
decision.  Some  of  the  wild  projects  of 
our  Populist  legislators  which  may  be 
found  on  the  Ales  of  the  last  two  Con- 
gresses call  for  more  paper  money  than 
the  Convention  authorized,  but  save  by 
comparison  with  this  merely  contemplated 
lunacy  the  record  of  the  French  Revo- 
lutionary Government  Is  a very  remark- 
able one.  In  Ave  years  8,000  millions  of 
francs  had  been  issued,  of  which  2,464 
millions  had  been  returned  to  the  Treas- 
ury and  cancelled,  leaving  5,536  millions 
in  circulation. 

But  the  freedom  with  which  the  Con- 
vention used  the  printing  press  to  make 
money  was  conservatism  itself  beside  the 
performances  in  this  line  of  its  successor, 
the  Directory.  Between  the  27th  of  Oc- 
tober, 1795,  and  the  18th  of  February,  1796, 
there  was  issued  more  than  20,000  million 
francs  of  new  assignats.  By  December, 
1796,  the  issue  reached  30,000  million 
francs,  and  by  February,  1797,  it  was  45,- 
500  millions,  of  which  20,000  millions  were 
in  the  hands  of  the  public.  A computa- 
tion was  made  in  1894  of  the  cost  of  some 
of  the  schemes  proposed  in  our  Senate 
and  House  of  Representatives  by  Popu- 
list members,  and  the  total  footed  up  to 
$35,507,300,000,  which  shows  how  easy  a 
superiority  American  Populism  at  its  best 
has  over  the  most  ambitious  Aiights  of 
French  Jacobinism.  When  the  limit  of 
saturation  was  Anally  reached  under  the 
Directory  a new  form  of  Government 
paper,  known  as  land  warrants,  were  Is- 
sued to  take  their  place.  The  assignats 
were  gradually  cancelled  till  their  amount 
Anally  shrunk  to  24,000  millions,  and  this 


aanount  was  made  convertible  into  800 
million  francs  of  land  warrants,  that  is  in 
the  proportion  of  thirty  to  one.  The  new 
obligations  whose  total  issue  amounted  to 
2,400  million  francs  constituted  a lien  on 
all  the  lands  of  the  Republic,  certain 
forest  lands  excepted,  but  they  were  so 
little  esteemed  that  they  were  at  a dis- 
count of  eighty-two  per  cent  on  the  day 
of  their  issue.  When  they  lost  ninety- 
nine  per  cent  of  their  value,  as  they  did 
within  a year,  they  were  withdrawn  from 
circulatian.  The  last  act  in  this  drama 
of  public  spoliation  was  the  “readjust- 
ment” of  the  national  debt  by  the  repudi- 
ation of  two-thirds  of  it,  the  remainder 
being  inscribed  on  the  great  book  of  the 
State  as  the  “consolidated  third.” 

Thus,  as  Pierre  des  Essars  remarks, 
from  whose  chapter  on  the  Assignats  in 
the  History  of  Banking  in  Prance  (pub- 
lished by  “The  Journal  of  Commerce 
and  Commercial  Bulletin”)  we  have 
taken  the  Agures  above  quoted,  “the 
issue  of  State  paper  money  ended 
In  bankruptcy  after  bringing  untold 
evils  upon  the  State.”  The  lesson 
was  not  lost  on  the  French  people,  the 
creation  of  the  Bank  of  Prance  on  a solid 
basis  of  Anancial  responsibility,  being  the 
work  of  the  Consulate  and  an  especial 
care  of  Bonaparte’s.  But  other  nations 
have  tried  the  same  experiment  of  con- 
Ading  the  dangerous  power  of  issuing 
paper  money  to  the  Government  as  if  it 
had  never  been  pushed  to  its  logical  con- 
clusion before  the  eyes  of  an  astonished 
world.  What  the  Populist  cranks  ask  and 
expect  of  it  here  ought  to  be  warning 
enough  of  the  mischief  which  is  Inherent 
in  any  toleration  of  the  system.  No  gov- 
ernment can  safely  abrogate  Its  function 
of  being  the  protector  of  its  people  against 
debasement  of  the  currency.  When  its 
stamp  ceases  to  mean  that  the  coin  which 
bears  it  is  exchangeable  at  its  face  value 
in  the  markets  of  the  world  it  has  en- 
tered on  the  path  that  leads  to  repudia- 
tion; when  it  begins  to  make  money  on 
the  basis  of  its  own  credit  it  challenges 
distrust  and  places  the  whole  fabric  of 
public  and  private  credit  at  the  mercy  of 
a temporary  necessity  or  a casual  out- 
break of  triumphant  demagogism. 


10 


IV.  BRAZIL  AND  ARGENTINA. 


Brazil  is  a coilntry  of  incalculable  natu- 
ral resources.  With  an  area  greater  than 
that  of  the  United  States,  its  range  of 
products  is  quite  as  extensive  and  the 
labor  required  to  extract  them  from  the 
soil  very  much  less.  Its  two  great  ex- 
ports of  coffee  and  rubber  have  returned 
for  years  enormous  profits.  It  was  be- 
lieved twenty  years  ago  that  the  rubber 
trees  could  not  be  made  to  yield'  without 
exhaustion  more  than  8,000  tons  a year, 
but  now  the  annual  production  has  risen 
to  from  20,000  to  21,000  tons.  The  average 
coffee  crop  of  Brazil  is  from  5,000,000  to 

6.000. 000  bags,  but  this  year  the  crop  will 
probably  be  found  to  be  from  8,000,000  to 

9.000. 000  bags,  and  though  the  price  has 
gone  down  the  average  return  to  the 
planter  is  more  than  it  was  when  his 
profits  made  him  the  most  fortunate 
among  agriculturists.  A dozen  reasons 
might  be  given  why  Brazil  should  have 
grown  rich  and  stilll  be  growing  richer, 
but  they  are  all  neutralized  by  the  one 
fact,  that  its  Government  discharges  its 
obligations  in  paper  promises  to  pay,  and 
that  the  bank  currency  is  based  on  the 
discredited  security  of  the  Government. 

For  a generation  Brazil  has  been  on  a 
paper  basis,  specie  payments  having  been 
suspended  in  1864.  But  up  to  the  fall  of 
the  Empire  the  note  oirciilabion  was  kept 
within  $100,000,000,  and  in  1880  paper  was 
held  in  preference  to  gold.  Between  1889 
and  1891  another  $150,000,000  of  unsecured 
paper  was  issued,  and  the  whole  volume 
outstanding  depreciated  to  one-third  of  its 
par  value.  The  Bank  of  the  Republic  of 
Brazil — 'the  product  of  a union  in  1892  of 
the  two  chief  banks  of  issue — lis  nominally 
responsible  for  the  paper  circulation,  but 
the  ultimate  liability  rests  with  the  Gov- 
ernment. The  Republic  had  not  been 
three  years  in  power  when  the  amount  of 
Government  paper,  exclusive  of  bank 
notes,  in  circulation  amounted  to  $116,- 
000,000,  reckoned  at  the  par  of  the  milreis. 
A.  little  over  a year  later,  by  the  end  of 
1893,  it  had  reached  $154,000,000;  and  in 
March,  1895,  it  was  $198,000,000.  At  the 
latter  date  the  bank  issues  amounted  to 
$184,000,000,  as  nearly  as  could  be  ascer- 


tained, making  a total  paper  circulation 
of  at  least  $382,000,000,  with  nothing  save 
'its  forced  currency  and  the  remains  of  the 
shattered  credit  of  the  Government  to 
keep  it  from  becoming  absolutely  worth- 
less. 

For  years  the  exchange  value  of  the 
milreis  has  been  steadily  downward,  and 
it  requires  to-day  about  300  milreis  in 
paper  to  buy  100  milreis  in  gold.  While 
the  process  of  depreciation  was  going  on 
business  was,  of  course,  a perpetual 
ganible.  Men  realized  how  'the  paradox 
could  become  a truism  that  the  more 
money  they  gained  the  poorer  they  be- 
came. A currency  that  shrinks  in  pur- 
chasing power  in  the  pocket  of  the  pos- 
sessor means  ruin  not  only  to  the  State 
that  legalizes  it  but  to  the  people  who 
use  it.  Habits  of  reckless  extravagance 
are  not  the  least  of  its  penalties,  and  a 
condition  of  universal  distrust  is  its  in- 
evitable end.  Brazil  is  reaping  to-day 
the  harvest  of  bankruptcy  which  she  has 
so  diligently  sowed,  and  the  fruit  is  all 
the  more  bitter  because  there  is  distress 
in  the  midst  of  plenty  and  poverty  under 
conditions  well  calculated  to  assure  the 
possession  of  wealth.  The  crisis  in  Brazil 
is  doubtless  aggravated,  and  recovery 
from  'it  will  be  less  easy  because  of  the 
incapacity,  seilfishness  and  corruption 
which  are  the  bane  of  South  American 
Republics;  but  the  primary  cause  of  it  all 
is  that  most  corrupting  of  all  governmen- 
tal powers — 'the  power  to  make  money  out 
of  printed  promises  to  pay,  dishonored  in 
the  act  of  making  them. 

The  troubles  of  the  Argentine  Republic 
have  sprung  from  the  same  source  as 
those  of  Brazil,  though  there  have  been 
characteri stile  differences  in  the  methods 
of  creating  them.  Here  the  greed  of  the 
politicians  and  the  extravagance  of  the 
Government  have  been  supplemented  by 
the  desire  to  make  popular  capital  by 
liberal  loans  to  the  farmer.  What  the  re- 
sult has  been  is  best  told  in  the  words  of 
the  last  annual  report  of  the  United 
States  Consul-General  at  Buenos  Ayres 
on  the  commerce  and  finances  of  the  Re- 
public. The  Hypothecary,  or  land  roort- 


gagre  bank,  of  the  Province  of  Buenos 
Ayres  has  ouitstaniding'  “cedulae”  amount- 
ing- to  $187,5^1,698  in  currency  and  $3,330,- 
000  in  gold.  But  the  lands  on  which  the 
mortgages  were  placed  are  edither  value- 
less or  they  are  valued  at  three  times 
more  than  their  present  market  price. 
The  securities,  taiken  altogether,  are 
thought  to  be  worth  about  20  cents  on  the 
dollar.  The  National  Hypotheteary  Bank 
has  outstanding  $74,966,650  in  currency 
cedulas  and  $12,291,200  tin  gold,  the  value 
of  the  former  being  estimated  at  50  cents 
on  the  dollar.  These  cedulas  form  part  of 
the  circulation,  and  like  the  notes  of  the 
National  banks  are  reckoned  among  the 
obligations  of  the  Government. 

W^hat  the  Consul-General  does  not  state 
is  that  when  this  mass  of  mortgage  loans 
was  issued  the  lands  were  deliberately 
overvalued  by  the  agents  of  the  Govern- 
ment, that  after  deducting  the  commission 
of  the  bank  probably  a third  of  the 
amount  realized  went  to  the  politician 
who  had  sufficdenit  “pull”  to  get  the  loan, 
and  that  the  farmier  got  only  the  re- 
mainder. The  Government’s  engaging  in 
the  banking  business  was  the  first  step 
downward,  the  rest  was  easy.  The  Pro- 
vincial Governments  have  followed  the 
lead  of  the  National  Government  in  this 
respect,  and  now  the  Republic  is  expected 
to  assume  the  responsibilities  of  all  of 
them.  The  combined  circulation  of  na- 
tional and  provincdlal  banks  amounts  to 
some  $290,000,000,  and  their  notes  are 
worth  about  30  cents  on  the  dollar.  Re- 
ducing the  currency  to  gold  at  320  dollars 
to  100  doUars,  the  total  debt  of  the  nation 
and  of  the  provinces,  including  the  notes 
of  the  banks  for  which  the  Government 
holds  iftself  responsible,  amounts  to  $714,- 
500,000— all  to  be  borne  by  a population  of 
but  little  more  than  two-thiirds  of  that  of 
New  York. 


The  Argentine  Republic  has,  obviously, 
drawn  on  the  future  with  a recklessness 
which  leaves  even  that  of  Brazil  far  be- 
hind. But  like  Brazil  the  instrument  of 
its  ruin  has  'been  the  lending  of  the  name 
of  the  Government  to  the  manufacture  of 
paper  money.  The  present  situation  of 
the  country  is  very  mildly  indicated  in 
these  statements  of  Consul-General  Baker: 
“The  rate  of  taxation  which  the  Govern- 
ment is  forced  to  levy,  in  order  to  pay 
even  a limjilted  proportion  of  the  interest 
on  its  bonded  indebtedness,  is  already 
having  its  effect  upon  the  people  and  the 
industries  of  the  country;  and  it  is  well 
understood  that  the  taxes,  in  all  their 
various  guises,  are  now  so  heavy  that 
capital  already  invested  here  is  no  longer 
able  to  pay  dividends,  and  there  are  but 
few  persons  who  are  willing  to  make  new 
investments  except  in  such  lines  of  in- 
dustry as  the  albsolute  necessities  of  the 
nation  require.”  When  a government  is 
compelled  to  buy  gold  to  meet  its  obliga- 
tions abroad  out  of  the  proceeds  of  taxes 
payable  in  a depreciated  currency  it  be- 
gins when  too  late  to  leam  how  costly  a 
device  its  papier  money  is,  either  to  tide 
over  a time  of  pressure  or  to  help  develop 
the  country.  The  Argentine  Republic  has 
had  five  years  of  hard  times,  and  the 
penalty  for  the  financial  debauch  that 
marked  the  few  preceding  years  of  seem- 
ing prosperity  is  still  very  far  from  being 
paid.  The  blight  that  fell  on  its  fortunes 
was  partly  due  to  public  dishonesty,  but 
that  was  fostered,  encouraged  and  ex- 
panded out  of  all  common  proportion  b^^ 
the  acceptanice  of  the  theory  that  every- 
body could  become  prosperous  if  only 
there  was  issued  enough  paper  money  to 
ffo  round  bearing  the  stamp  of  a legal 
tender  and  the  capacity  to  discharge  dues 
to  the  public  Treasury. 


